Technical recession avoided with 0.1% growth in Q3

Flash estimates by the Ministry of Trade and Industry showed that the Singapore economy grew by 0.1 per cent on a year-on-year basis in the third quarter of 2019, the same pace of growth as in the previous quarter.
Flash estimates by the Ministry of Trade and Industry showed that the Singapore economy grew by 0.1 per cent on a year-on-year basis in the third quarter of 2019, the same pace of growth as in the previous quarter.PHOTO: ST FILE

Robust policy response still needed, say analysts; MAS eases S$ rate of appreciation

Singapore has narrowly avoided a technical recession in the third quarter, according to flash estimates by the Ministry of Trade and Industry (MTI) yesterday, but economists say a robust policy response will still be needed to "lift the boat" amid a choppy outlook.

The Monetary Authority of Singapore (MAS) has eased the Singdollar's rate of appreciation as well, leaving room for further easing should prospects for inflation and growth weaken significantly.

The Republic's economy grew by 0.1 per cent from a year ago, at the same pace it did in the second quarter, dragged down by manufacturing, which had its weakest showing since 2005.

On a quarterly basis, growth was 0.6 per cent, reversing a 2.7 per cent contraction in the previous quarter.

Two consecutive quarters of negative quarterly growth would have marked a technical recession for Singapore's economy, which is seen as a bellwether for global demand, given its reliance on foreign trade.

Still, the mood remains cautious.

DBS senior economist Irvin Seah said: "Growth may have bottomed, but the improvement ahead could be weak."

The United States-China trade war, the prospect of Brexit and China's slowdown all pose significant challenges.

"What would be required to turn the receding global economic tide would be a robust and synchronised fiscal boost across the region," he said. "Policymakers are beginning to roll out expansionary fiscal policies, (and) we expect the Singapore authorities to do likewise in the upcoming Budget next year."

Amid the trade war, manufacturing contracted by 3.5 per cent, shrinking for a third consecutive quarter.

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, pointed out that the partial trade deal between the US and China "does not cover Huawei or other Chinese companies in the US entity list, which suggests any near-term market optimism about the tech sector regaining its momentum may be disappointed".

"The electronics and supporting industries should still see persistent weakness over the near term," she said, flagging that a more disconcerting fact is that the service sector has continued to soften in growth momentum.

 
 
 
 

The services-producing industries expanded by 0.9 per cent year on year in the third quarter, slower than 1.1 per cent previously and supported by finance and insurance, other service industries such as education, and business services. The construction sector grew by 2.7 per cent.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye were less downbeat. "The possibility of a more substantial agreement is rising as US President Donald Trump is coming under greater pressure to seal a deal in the lead-up to US elections in November 2020," they said.

MAS said it expects Singapore's growth, which slowed over the first three quarters, to pick up modestly next year, subject to considerable uncertainty in the external environment. It anticipates global growth to stabilise next year, barring further shocks.

MAS core inflation, which excludes costs of accommodation and private road transport, is expected to come in at the lower end of the 1 per cent to 2 per cent range this year, averaging between 0.5 per cent and 1.5 per cent next year.

Headline inflation is projected to be around 0.5 per cent this year, and average between 0.5 per cent and 1.5 per cent next year, said MAS.

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A version of this article appeared in the print edition of The Straits Times on October 15, 2019, with the headline 'Technical recession avoided with 0.1% growth in Q3'. Print Edition | Subscribe